sample compliance manual

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This manual is not a legal document and is not a substitute for the advice of an attorney. This

manual is not intended to create an attorney-client relationship, and by using its contents, no

attorney-client relationship is created. This manual is intended to give a general

understanding of the applicable laws and regulations and sample documents to individuals who

choose to prepare their own legal documents. While every reasonable effort was made to keep

information up-to-date and legally sufficient, the legal information in this manual is not legal

advice and is not guaranteed to be correct, complete or up-to-date. Because the law changes

rapidly, is different from jurisdiction to jurisdiction, and is also subject to varying

interpretations by different courts and certain government and administrative bodies, it

cannot be guaranteed that all the information in the manual is current. Following the

guidance contained within this manual cannot guarantee compliance with all applicable law or

rule.

Complied by CDS Management Company, LLC

©2011 - All Rights Reserved.

Editors: Betty Aldworth, Jake Browne, Kevin Byrne, Barbara Carnahan, Don Grede, Josh Kappel, Jill

Lamoureux, Shannon Lamoureux, Ryan Vincent

Colorado Medical Marijuana Code

STATE & DENVER EDITION

Colorado Revised Statutes, Title 12,

Article 43.3 Medical Marijuana

CDS Management Co. - Release 1.2 – May 10, 2011

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TABLE OF CONTENTS TABLE OF CONTENTS ________________________________________________________________________ 2

SECTION 1 - INTRODUCTION __________________________________________________________________ 9

SECTION 2 - DEFINITIONS/ACRONYMS ________________________________________________________ 12

SECTION 3 - LICENSING _____________________________________________________________________ 13

OWNERSHIP AND FINANCING ______________________________________________________________ 13

OVERVIEW ____________________________________________________________________________ 13

COMPLIANCE REQUIREMENTS____________________________________________________________ 14

RECORDKEEPING & REPORTING _________________________________________________________ 14

REFERENCES ___________________________________________________________________________ 14

BUSINESS LICENSING _____________________________________________________________________ 16

OVERVIEW ____________________________________________________________________________ 16



REFERENCES ___________________________________________________________________________ 18

OCCUPATIONAL LICENSES _________________________________________________________________ 20

OVERVIEW ____________________________________________________________________________ 20



REFERENCES ___________________________________________________________________________ 22

TRANSFER OF LICENSE LOCATION OR OWNERSHIP & ENTITY CHANGES ________________________ 23

OVERVIEW ____________________________________________________________________________ 23



SECTION 4 - DECLARATORY ORDERS & JUDICIAL REVIEW _______________________________________ 25

OVERVIEW ____________________________________________________________________________ 25


REFERENCES ___________________________________________________________________________ 26

SECTION 5 - SECURITY ______________________________________________________________________ 27

ALARM SYSTEM & LOCKS __________________________________________________________________ 27

OVERVIEW ____________________________________________________________________________ 27



REFERENCES ___________________________________________________________________________ 27

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VIDEO SURVEILLANCE ____________________________________________________________________ 28

OVERVIEW ____________________________________________________________________________ 28



REFERENCES ___________________________________________________________________________ 29

SECTION 6 - MMC OPERATIONS ______________________________________________________________ 30

GENERAL OPERATIONS ___________________________________________________________________ 30

OVERVIEW ____________________________________________________________________________ 30



REFERENCES ___________________________________________________________________________ 30

SIGNANGE & ADVERTISING ________________________________________________________________ 32

OVERVIEW ____________________________________________________________________________ 32



REFERENCES ___________________________________________________________________________ 32

LIMITED ACCESS AREAS & PREMISES MODIFICATIONS _________________________________________ 33

OVERVIEW ____________________________________________________________________________ 33



REFERENCES ___________________________________________________________________________ 33

SANITATION _____________________________________________________________________________ 35

OVERVIEW ____________________________________________________________________________ 35



REFERENCES ___________________________________________________________________________ 36

PATIENT MANAGEMENT ___________________________________________________________________ 37

OVERVIEW ____________________________________________________________________________ 37



REFERENCES ___________________________________________________________________________ 37

MEDICAL MARIJUANA INVENTORY __________________________________________________________ 39

OVERVIEW ____________________________________________________________________________ 39


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REFERENCES ___________________________________________________________________________ 40

MANUFACTURED INFUSED PRODUCTS INVENTORY ___________________________________________ 41

OVERVIEW ____________________________________________________________________________ 41



REFERENCES ___________________________________________________________________________ 41

MEDICAL MARIJUANA PRODUCTS SALES ____________________________________________________ 42

OVERVIEW ____________________________________________________________________________ 42



REFERENCES ___________________________________________________________________________ 43

SALES TAX _______________________________________________________________________________ 44

OVERVIEW ____________________________________________________________________________ 44



REFERENCES ___________________________________________________________________________ 44

SECTION 7 - OPC OPERATIONS _______________________________________________________________ 45

LIMTED ACCESS AREAS & PREMISES MODIFICATIONS _________________________________________ 45

OVERVIEW ____________________________________________________________________________ 45



REFERENCES ___________________________________________________________________________ 46

SANITATION _____________________________________________________________________________ 47

OVERVIEW ____________________________________________________________________________ 47



REFERENCES ___________________________________________________________________________ 48

PLANT INVENTORY _______________________________________________________________________ 49

OVERVIEW ____________________________________________________________________________ 49



REFERENCES. __________________________________________________________________________ 49

MANUFACTURING PROCESS _______________________________________________________________ 50

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OVERVIEW ____________________________________________________________________________ 50



REFERENCES ___________________________________________________________________________ 51

WASTE DISPOSAL_________________________________________________________________________ 52

OVERVIEW ____________________________________________________________________________ 52



REFERENCES ___________________________________________________________________________ 52

SECTION 8 - TRANSPORTATION & STORAGE ___________________________________________________ 53

TRANSPORTATION _______________________________________________________________________ 53

OVERVIEW ____________________________________________________________________________ 53



REFERENCES ___________________________________________________________________________ 54

WAREHOUSE STORAGE ___________________________________________________________________ 55

OVERVIEW ____________________________________________________________________________ 55



REFERENCES ___________________________________________________________________________ 55

SECTION 9 - AUDIT & ENFORCEMENT _________________________________________________________ 56

LAW ENFORCEMENT & MMED INTERACTIONS ________________________________________________ 56

OVERVIEW ____________________________________________________________________________ 56



REFERENCES ___________________________________________________________________________ 57

INSPECTION OF BOOKS AND RECORDS ______________________________________________________ 58

OVERVIEW ____________________________________________________________________________ 58



REFERENCES ___________________________________________________________________________ 58

COMPLAINTS AND HEARINGS ______________________________________________________________ 59

OVERVIEW ____________________________________________________________________________ 59


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REFERENCES ___________________________________________________________________________ 59

LICENSE SUSPENSION _____________________________________________________________________ 60

OVERVIEW ____________________________________________________________________________ 60



REFERENCES ___________________________________________________________________________ 61

SECTION 10 - FORMS _______________________________________________________________________ 62

Petition for a Statement of Position or Declaratory Order ___________________________________ 63

MMC Patient Disclosure and Cultivation Authorization ______________________________________ 64

HIPAA Release Form _____________________________________________________________________ 66

Badge Issuance Log ______________________________________________________________________ 67

VISITOR LOG – COPY ALL VISITOR‟S IDENTIFICATION ________________________________________ 68

ALARM EVENT LOG _______________________________________________________________________ 69

DAILY BATCH LOG (Batch by Date or Strain) ________________________________________________ 70

WASTE DISPOSAL LOG (ATTACH TO EACH WASTE CONTAINER) ________________________________ 71

SECTION 11 - COLORADO MEDICAL MARIJUANA ENFORCEMENT DIVSION RULES ___________________ 72

CHAPTER 1 --- GENERAL RULES & REGULATIONS --- _________________________________________ 75

100‟s --- Compliance ___________________________________________________________________ 75

200‟s --- Enforcement __________________________________________________________________ 76

300‟s --- Violations _____________________________________________________________________ 78

CHAPTER 2 --- DUTIES OF OFFICERS & EMPLOYEES OF THE MMED --- __________________________ 83

100‟s --- Inspectors and Medical Marijuana Supervisors____________________________________ 83

CHAPTER 3 --- INST. FOR LOCAL LICENSING AUTHORITIES & LAW ENFORCEMENT --- ___________ 84

---Reserved--- _________________________________________________________________________ 84

CHAPTER 4 --- INSPECTIONS, INVESTIGATIONS, & SEARCHES & SEIZURES --- ___________________ 85

100‟s --- Inspections (Reserved) _________________________________________________________ 85

200‟s --- Investigations (Reserved) ______________________________________________________ 85

300‟s --- Searches and Seizures (RESERVED) ______________________________________________ 85

CHAPTER 5 --- RANGE OF PENALTIES --- ____________________________________________________ 86

100‟s --- General Provisions ____________________________________________________________ 86

CHAPTER 6 --- UNFAIR & PROHIBITED PRACTICES --- ________________________________________ 90

100‟s --- Advertising Practices __________________________________________________________ 90

CHAPTER 7 --- INFORMATIONAL & PRODUCT DISPLAYS --- ____________________________________ 91

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--- Reserved --- ________________________________________________________________________ 91

CHAPTER 8 --- IDENITIFCATION CARD & BACKGROUND CHECKS --- ____________________________ 92

100‟s --- Occupational Licenses Required ________________________________________________ 92

CHAPTER 9 --- STATE LICENSEES --- _______________________________________________________ 94

100‟s --- General Disclosure Requirements _______________________________________________ 94

CHAPTER 10 --- SECURITY REQUIREMENTS --- _______________________________________________ 96

100‟s --- General Provisions ____________________________________________________________ 96

200‟s --- Alarm Systems ________________________________________________________________ 96

300‟s --- Lock Standards ________________________________________________________________ 99

400‟s --- Video Surveillance_____________________________________________________________ 99

CHAPTER 11 --- STORAGE & TRANSPORTATION --- _________________________________________ 107

100‟s --- General Provisions for Storage ________________________________________________ 107

200‟s --- General Provisions for Transportation __________________________________________ 107

CHAPTER 12 --- SANITARY REQUIREMENTS --- ______________________________________________ 109

100‟s --- Physical Premises ____________________________________________________________ 109

200‟s --- Waste Disposal _______________________________________________________________ 110

CHAPTER 13 --- VERIFYING A SALE --- _____________________________________________________ 112

100‟s --- General Provisions ___________________________________________________________ 112

CHAPTER 14 --- LABELING STANDARDS --- _________________________________________________ 113


CHAPTER 15 --- RECORD RETENTION BY LICENSEE & ACCESS BY OTHERS --- __________________ 117

--- Reserved --- _______________________________________________________________________ 117

CHAPTER 16 --- STATE LICENSING PROCEDURES --- _________________________________________ 118

100‟s --- Initial Licenses _______________________________________________________________ 118

200‟s --- Renewals (Reserved) _________________________________________________________ 121

300‟s --- Reinstatements (Reserved) ____________________________________________________ 121

400‟s --- Payment of Licensing Fees (Reserved) _________________________________________ 121

CHAPTER 17 --- SALES TAX --- ____________________________________________________________ 122


CHAPTER 18 --- ACCESS TO LICENSING INFORMATION BY DEPARTMENT OF REVENUE --- _______ 123

--- Reserved --- _______________________________________________________________________ 123

CHAPTER 19 ---ADMINISTRATIVE CITATIONS--- _____________________________________________ 124

100‟s --- Practice and procedure _______________________________________________________ 124

CHAPTER 20 ____________________________________________________________________________ 128

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--- Reserved --- _______________________________________________________________________ 128

SECTION 13 - COLORADO MEDICAL MARIJUANA CODE _________________________________________ 129

ARTICLE 43.3 ___________________________________________________________________________ 129

PART 1 - COLORADO MEDICAL MARIJUANA CODE ___________________________________________ 129

PART 2 - STATE LICENSING AUTHORITY ___________________________________________________ 132

PART 3 - STATE & LOCAL LICENSING ______________________________________________________ 134

PART 4 - LICENSE TYPES _________________________________________________________________ 143

PART 5 - FEES __________________________________________________________________________ 145

PART 6 - DISCIPLINARY ACTIONS __________________________________________________________ 147

PART 7 - INSPECTION OF BOOKS & RECORDS _______________________________________________ 148

PART 8 - JUDICIAL REVIEW _______________________________________________________________ 148

PART 9 - UNLAWFUL ACTS - ENFORCEMENT _______________________________________________ 149

PART 10 - SUNSET REVIEW _______________________________________________________________ 151

SECTION 14 - COLORADO REVISED STATUTES – Other References ______________________________ 162

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SECTION 1 - INTRODUCTION

CDS Management Company, LLC (CDS) formed in late 2009 as a management company for independent

cultivation businesses. In 2010, the company evolved to assist companies in fully complying with the

Colorado Medical Marijuana Code (Code) and its implementing regulations. The Code creates an extra-

constitutional right to operate a medical marijuana business. It also creates the State Licensing Authority

and the Medical Marijuana Enforcement Division (MMED) in the Department of Revenue with broad powers to

“Promulgate such rules and such special rulings and findings as necessary for the proper regulation and

control of the cultivation, manufacture, distribution, and sale of medical marijuana and for the enforcement

of “the Medical Marijuana Code.” The first set of regulations implementing the Code was approved by the

Colorado Attorney General in April 2011.

While offering operators clear guidance to follow, the Code also has stripped its licensees of

constitutional protections. No case history yet exists for challenges to the Code or any of its provisions.

Although many mandates may ultimately be found to be unenforceable by the courts or operational

constraints, compliance with all laws and rules is required to maintain a license to operate. License holders

are liable for all infractions of employees and agents. In addition to license risk, non-compliance of any

provision of the Code or the regulations promulgated by the MMED may be considered a criminal offense.

Any violation during the application process or subsequent to licensing could be determined to be evidence of

“bad moral character,” reason for immediate license denial or revocation, and a bar from applying in the

future.

It is important to note that currently anyone involved in the medical marijuana industry could be

prosecuted for violating federal law, namely the Controlled Substance Act. Although the Federal

Government has not prosecuted any medical marijuana businesses in Colorado‟s ten year history and the U.S.

Department of Justice has published a memorandum saying that they will not prosecute those in

unambiguous compliance with state law, the US Attorney for the District of Colorado has stated that

prosecuting those who violate the Controlled Substances Act continues to be a “core priority.”

As for Colorado law, Part 9 of the Code outlines certain acts of licensees which constitute a Class 2

criminal misdemeanor in addition to possibly resulting in other potential criminal penalties. These unlawful

acts include:

1. Consumption or the allowance of consumption of medical marijuana on a licensed premises;

2. Permitting the fraudulent use of a medical marijuana registry card;

3. Operating a medical marijuana business without licensing;

4. Operating a medical marijuana center without producing 70% of inventory needed for operations;

5. Accessing a limited access area without proper identification;

6. Failing to designate with a sign all limited access areas;

7. Failing to report a change in ownership prior to the change;

8. Failing to report a change in managers prior to the change;

9. Display of signage that does not comply with applicable local ordinance;

10. Use of misleading, deceptive, or false advertising;

11. Sale of medical marijuana to a person without proper documentation;

12. Employing a person under 21 years of age to cultivate or dispense medical marijuana

13. Possession of an amount of medical marijuana product or plants which exceeds the amount

allowed by patient registrations;

14. Sale or arranging a sale of medical marijuana in person off the licensed premises;

15. Possessing medical marijuana on a licensed premises which the licensee is not authorized to sell;

16. Purchasing medical marijuana from an unlicensed source;

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17. Requiring another licensee to deliver medical marijuana products to a location other than the

MMC;

18. Selling medical marijuana outside the hours of 8:00 am and 7:00 pm;

19. Engaging in anti-competitive sales practices;

20. Selling medical marijuana products the licensee is not authorized to sell; or

21. Offering anything of value to a physician in exchange for referrals to the licensee.

Businesses must also remain compliant with all applicable local ordinances. Local jurisdictions may

adopt a medical marijuana business ordinance or opt-out and prohibit some or all state licensed medical

marijuana businesses. If a local jurisdiction does not adopt an ordinance either regulating or banning state

licensed medical marijuana businesses by July 1st, 2011, the local jurisdiction is deemed to opt in and the

provisions of the Code apply locally. Local ordinances and resolutions may impose more restrictive rules and

regulations for medical marijuana business than the Code. Only in cases regarding set back and other zoning

requirements may a local ordinance be less restrictive than the Code. Ultimately, localities may adopt rules

different than the Code. In other words, localities may adopt rules different than the Code in distance

restrictions from various types of locations (i.e. schools, parks, etc.), size of businesses, or “any other

requirements necessary to ensure the control of the premises and the ease of enforcement of the terms and

conditions of the license.”

Currently there is a state moratorium on opening new medical marijuana businesses and only businesses

that applied to the State by August 1, 2010 may continue operations until a license is granted or denied. In

some cases with local and state approval these businesses may be sold or moved during the application

review. All other medical marijuana businesses seeking to operate after July 1, 2011 must be licensed by

both the State and the local jurisdiction prior to beginning operations.

Despite the 77 pages of regulations adopted to implement the Code, guidance is still needed from MMED

in several areas prior to the compliance deadline of July 1, 2011. The MMED will release information on the

following topics before compliance is required in those areas:

1. Minimum statutory requirements for infused products contracts;

2. Designated signage for propagation, vegetation, and flowering areas of an Optional Premises

Cultivation (OPC) licensed facility;

3. Designated signage for the limited access area of a licensed premises;

4. Approved secure transportation containers and tamper-proof tape;

5. Inventory control procedures and tag type;

6. MMED approved standards and approved DVR/NVR list;

7. Secure Facility Submission/Application Form;

8. Surveillance equipment work approved log; and

9. An MMED approved transportation manifest and online submission process.

In addition to following any changes to medical marijuana laws and rules, licensees should regularly

check the following laws and rules for updates:

1. Local business, signage and zoning laws and rules;

2. Waste water and solid waste disposal laws and rules;

3. State and federal business laws and rules (human resources, safety, etc.);

4. IRS guidance to medical marijuana businesses and Federal Tax Law relating to the sale of controlled

substances (including IRS 280E);

5. Local and state sales tax laws and rules; and

6. Rotterdam Convention on the Prior Informed Consent (PIC) Procedure for Certain Hazardous

Chemicals and Pesticides in International Trade and other EPA banned chemicals (additions are not

automatically banned by rule – MMED must take action to add to the original list).

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http://www.epa.gov/oppfead1/international/agreements/

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Please note that State and local medical marijuana laws and regulations are consistently updated and

revised and lobbying and direct political participation is necessary to ensure the success of this industry.

For example, The Colorado Medical Marijuana Code is set to repeal on July 1, 2015 after a review by the

Colorado Department of Regulatory Affairs.

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SECTION 2 - DEFINITIONS/ACRONYMS

Associated person – owners, shareholders, partners, members, officers, lenders or others having a financial

interest in the business but not working in the business

Associated key – owners or others working on the licensed premise who have a financial interest in the

business

CDPHE - Colorado Department of Health and Public Environment

Center – See MMC

Code – the Colorado Medical Marijuana Code (Colorado Revised Statutes Title 12, Article 43.3)

HIPAA – Health Insurance Portability and Accountability Act

Licensed premises – the facilities occupied by a licensee that is authorized to cultivate, manufacture,

distribute, or sell medical marijuana

Limited access area – any area where medical marijuana is grown, cultivated, stored, weighed, displayed,

packaged, sold, or possessed for sale

Licensee – a person or entity licensed under the Colorado Medical Marijuana Code

LLA – local licensing authority

Local licensing authority – the local government department responsible for medical marijuana licensing

within the municipality or county the licensed premises is located

MIP – Medical Marijuana-Infused Products Manufacturer

MMC – Medical Marijuana Center

MMED – the Medical Marijuana Enforcement Division of the Colorado Department of Revenue

Non-member – patient who is not assigned to the business through the Registry

OPC – Optional Premises Cultivation Premises– a facility occupied by a licensee approved for the cultivation

of medical marijuana

POS – retail point of sale system

Registry – the Medical Marijuana Registry maintained by the Colorado Department of Health and Environment

Rules – regulations promulgated by the MMED or CDPHE

State licensing authority – the Executive Director of the Colorado Department of Revenue and its appointees

State – the State of Colorado

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BEST PRACTICES

Contact your legal

advisor before

determining an

ownership structure or

entering into any

agreements with

landlords, lenders,

equipment lessors or

service providers.

Engage a private

investigator to perform

background checks on

all investors prior to

submitting application

to the MMED or the

LLA.

Include a change in law

and license denial

clause in all operating

and membership

agreements for the

business.

Execute ownership

agreements with the

effective date

beginning upon

approval from MMED

and the LLA.

Engage a legal review

before executing any

corporate formation

documents.

MULTIPLE FACILITIES

Each facility operated

will require a separate

application, separate

license, and separate

reporting to the MMED

and the LLA as required.

SECTION 3 - LICENSING

OWNERSHIP AND FINANCING

OVERVIEW

Each MMC license must be held by the owner(s) of the establishment. Owners

must meet all requirements of a licensee including Colorado residency (2 year). An

owner is a person or entity whose proprietary interest is such that they bear risk of

loss and have opportunity to gain profit from the operation or sale of the

establishment. Ownership is constituted by a limited or general partnership interest,

joint venture interest, or ownership of a share or shares in a corporation or a limited

liability company which is licensed. Any person who guarantees production levels,

yields, quantities produced or other obligations of the licensee or its operation is

considered to have a financial interest and is deemed an owner. Insurers are not

considered owners. An owner is considered an associated key person by the MMED

when they are directly involved in the operation of the business. Elements of control

considered by the MMED in determining ownership include:

Possession;

Control of the license;

Guarantee of debt or production;

Insurance beneficiaries; and

Tax liabilities.

A spouse of a licensee may hold a license in his or her own right as owner

regardless of tax return status. Having a secured interest in furniture, fixtures,

equipment or inventory constitutes ownership and a direct financial interest. A

complete disclosure of all persons having a direct financial interest, and the extent of

such interest, in each license is required by the MMED. A person shall not have an

undisclosed interest in a licensee unless they have undergone a fingerprint-based

criminal history check. The requirement does not apply to banks and certain other

financial institutions.

An owner is considered an associated key person by the MMED when they are

directly involved in the operation of the business. An owner not directly involved in

the operation of the business is considered an associated person. Lenders, landlords

and other persons may be required to submit applications if they are determined to

have a financial interest in the business. If the applicant is unclear on the level of

interest of an associated person, submit a request to the MMED for a determination.

Any change of ownership, lending relationships, etc. must be report to the MMED and

LLA and in most cases receive prior approval.

Many jurisdictions do not allow people to work on premises until passing the

background investigation. After July 1, 2011, the MMED will not allow associated key

persons on-site until clearing a background investigation and receiving license

approval. The licensing agencies must be notified of any changes in interest related

to associated persons within 10 days. It is unlawful to fail to report any change in

ownership thirty days prior to the MMED. The MMED must be notified in writing of any

arrest, summons, or conviction of an associated person subsequent to licensing. SA

MPLE

sample compliance manual

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